GBP/USD: Recovery remains capped at 1.3950 amid weaker USD, Brexit jitters

• GBP/USD stalls its renewed upside amid a cautious market mood.
• US dollar remains broadly weaker alongside Treasury yields.
• Uncertainty around NI Brexit deal keeps a check on the GBP ahead of ECB.

GBP/USD is trading below 1.3950, consolidating the latest uptick amid broad-based US dollar weakness and a cautious market mood.

The greenback resumed its slide on Wednesday, mainly triggered by a major sell-off in USD/CAD after the Bank of Canada (BOC) resorted to tapering and bolstered the CAD bulls.

Further, a recovery in the US stocks also weighed on the safe-haven dollar. Meanwhile, the dovish Fed expectations continue to exert downward pressure on the greenback and the US Treasury yields.

However, the recovery in the cable remains limited by the ongoing Brexit concerns surrounding the Northern Ireland (NI) border issue, despite the UK Boris Johnson offering his intent to do anything needed to secure a deal.

Johnson has said he is trying to get rid of the “ludicrous” Brexit border checks in Northern Ireland by “sandpapering” the protocol he signed with the EU in January 2020, reported by The Guardian.

The looming Brexit jitters combined with the pre-ECB cautious trading leave the GBP/USD pair in familiar ranges above 1.3900. The ECB is likely to stand pat on its monetary policy setting, although could lift the growth and inflation outlook. The pound could face a ‘rub-off effect’ from the EUR/GBP trades on the central bank decision.

Meanwhile, the US weekly Jobless Claims and housing data will be awaited for additional trading impetus. The UK docket is data-empty this Thursday while markets digest Wednesday’s mixed inflation reading.

GBP/USD technical levels

FXStreet’s Analyst Anil Panchal notes, “The corrective pullback will soon hit the first hurdle, namely 50% Fibonacci retracement of February-April downside, around 1.3960. Meanwhile, downside moves below the nearby horizontal support around 1.3910 will aim for a 200-SMA level of 1.3915.”

GBP/USD additional levels